February single family housing starts jumped 6.5 percent to an 872,000 unit annual rate. This makes the fifth consecutive month that construction of single family homes has remained above 800,000 units. The first nine months of last year saw an average of 760,000 units, or 100,000 units below our current average.
So far this year, the single family market is running 8 percent ahead of 2016. The multifamily sector is a different story. Construction of multifamily units fell for the second consecutive month in February to less than 400,000 units. This loss puts the building of multifamily units back to roughly the level we saw over the last two years as shown in the chart below.
Last week, the Fed decided to increase the federal funds rate to the 0.75 to 1.0 percent range. This move, although long expected, will result in a tightening of the mortgage markets. In fact, the 30-year mortgage rate rose nine basis points last week to 4.3 percent.
We see in the chart below that mortgage rates seem to be pointing up. Fortunately for our members who depend on renovations, the impact will not necessarily be large because most remodeling jobs are self-financed by homeowners.
But it’s a different story for new construction. Both the builders and the homebuyers rely on borrowed funds. So we should expect a leveling of housing construction over the next few months.
Another of our NKBA Economic Indicators was released last week, Sales of Building Materials, which jumped a robust 12.3 percent in January to reach $30 billion for the month. Despite the strong sales of building materials, Appliance Store Sales continue to drop. They came in at $1.19 billion in January, nearly 3 percent below last year’s level. The chart below compares the sales performance at appliance stores to all retail sales.
January retail sales for all items has grown every year as displayed in the chart, even 2016 when growth was under 1 percent. In contrast, sales at appliance stores grew less rapidly for 2014 and 2015, and has declined for the last two years.
Manuel Gutierrez, Consulting Economist to NKBA., economist@nkba.org
Explanation of NKBA’s Economic Indicators Dashboard
The dashboard displays the latest value of each economic indicator. Note that all the data, except for “mortgage rate” and “appliance store sales” are seasonally adjusted and are represented at annual rates.
Remodeling Expenditures. This is the amount of money spent on home improvement projects during the month in question. It covers all work done for privately-owned homes (excludes rentals, etc.). The data are in billions of dollars and are issued monthly by the U.S. Department of Commerce.
Single Family Starts. It is the number of single family houses for which construction was started in the given month. The data are in thousands of houses and are issued monthly by the U.S. Department of Commerce.
Existing Home Sales. These data are issued monthly by the National Association of Realtors, and capture the number of existing homes that were sold in the previous month.
High-End Home Sales. This series represents sales of new homes priced at $750,000 and over. The data are released quarterly by the U.S. Department of Commerce, and are not seasonally adjusted. Thus a valid comparison is made to the same quarter of prior year.
Mortgage Rate. We have chosen the rate on 30-year conventional loans that is issued by the Federal Home Loan Mortgage Corporation (known popularly as Freddie Mac.) Although there are a large number of mortgage instruments available to consumers, this one is still the most commonly used.
Employees in Residential Remodeling. This indicator denotes the number of individuals employed in construction firms that do mostly residential remodeling work.
Building Materials Sales. These data, released monthly by the Department of Commerce, capture the total sales of building materials, regardless of whether consumers or contractors purchased them. However, we should caution that the data also include sales to projects other than residential houses.
Appliance Store Sales. This driver captures the monthly sales of stores that sell mostly household appliances; the data are stated at an annual rate. We should not confuse this driver with total appliance sales, since they are sold by other types of stores such as Home Centers.
We hope that you find this dashboard useful as a general guide to the state of our industry. Please contact us if you would like to see further detail.
